Copyright law is a funny beast. Even in its most recent incarnations, freshly stamped with Congressional approval, it rarely keeps pace with changing business models and new invention. It’s evolutionary law subject to seemingly constant interpretation (and re-interpretation) to match legislative intent to new market paradigms. A case in point: in March 2007, the U.S. District Court in New York ruled a digital video recorder (DVR) that used remote storage instead of a local hard drive violated copyright laws. Yesterday, the U.S. Court of Appeals (2nd Circuit) reversed the ruling and said Cablevision’s planned remote storage DVR (RS-DVR) is legal.

In the original lawsuit, Cartoon Networks, Fox, CNN, Disney, NBC and others claimed Cablevision’s planned system, which moves all storage of recorded programming to Cablevision facilities, created the equivalent of a Video On Demand service that violated their copyright rights. They claimed in the suit that it was “an unauthorized video-on-demand service that would undermine video on demand, download, mobile device and other novel and traditional services that the plaintiffs and other copyright owners have developed and are actively licensing in the marketplace.”

In the first trial, the District Court agreed. The judgment found that copying video to the Cable Co’s servers violated copyright limitations on reproduction. Furthermore, streaming it back to the customer on demand, the court found, was an unlicensed “broadcast” that violated copyright owners rights to control public performances.

The Appeals Court disagreed and reversed. (Ruling is available here). The reproduction issue, the court ruled, didn’t fit because Cablevision has no control over what programs are delivered through the service. On the issue of rebroadcasting the court determined a single customer transmitting to himself/herself is no more public that recording a program with a VCR or local DVR.

Specifically, the court said, “we do not believe that an RS-DVR customer is sufficiently distinguishable from a VCR user to impose liability…”

The ruling is being sent back to District Court for further determination. It could also be appealed further but if it stands it could have significant impact for cable companies, consumers and the media industry.

•CABLE COMPANY BENEFITS•

•Cost Savings:
Once installed and initial costs are absorbed, the ability to use network storage could allow cable companies to save considerably on the new set top box implementations and upgrades. In fact, when TruWay TV card standards agreed on by Cable Co’s and electronics makers in late May come to market, the set top box could disappear almost entirely. Cablevision, Comcast, Time Warner, Charter and others could all offer DVR services and cable decoding straight through the TV set – no unsightly box needed.

•Business Models:
Network storage capacity could be sold or leased at a variety of different prices by a cable company depending on usage. A tiered system triggered by storage would allow an entirely new revenue stream.

The storage could also be expanded to share, and stream, personal music collections and photos uploaded from a customer’s PC. Effectively, a remote DVR storage system would give a cable company a legitimate basis for being a “hub” in a connected home entertainment environment. If that happens, than the set top box (real or TV Card) becomes a gateway. That’s especially interesting in an era where “cloud” computing is becoming an increasingly popular buzzword.

•Competitive Advantage:
Satellite services and cable companies currently compete on cost and channel offerings. This kind of service, however, would be something applicable only to cable customers (Satellite technology won’t allow this kind of service today).

•CONSUMER BENEFITS•

The most obvious consumer benefits are cost and convenience. Network storage with potentially unlimited capacity is easy enough to understand. Beyond that, the nature of how the court determined there was no “rebroadcast” could provide another perk, a valuable precedent.

Notably, the court ruled that since a recorded program can only be seen by the person who did the copying it wasn’t a rebroadcast. It was the equivalent to a VCR recording. That same logic, if applied broadly, would appear to make place shifting services that let consumers record content in one place and watch it in another, unquestionably legal (Today, they exist but some fear that in some incarnations they’ll be subject to expensive copyright litigation). That means, from existing services like Slingbox to products not yet available, one source of content can travel with you without hard drives in tow. That prospect, the fact that it might potentially exist free of copyright challenge, is compelling.

•MEDIA INDUSTRY COSTS •

In an industry where ad dollars are gold, the prospect of an easier, widespread service that allows commercial skipping could hurt ad sales. That would probably hurt local broadcasters the most. But a rollout of this kind of service also represents direct competition. As noted in the original plaintiff’s complaint, RS-DVRs “would undermine video on demand, download, mobile device and other novel and traditional services that the plaintiffs and other copyright owners have developed and are actively licensing in the marketplace.”